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November 2018

Subbies unsafe; late payments and their knock-on effects

Anyone who has been following our last series of blog posts will be well aware of the pressure under which UK construction firms are now beginning to crack.

Brexit’s uncertainty, Carillion’s collapse, falling margins and lower lending all spell a picture of doom and gloom in the industry, and it’s clear that subbies are most vulnerable to the worst of the effects.

Take the example of Salford subcontractor GPL; a group of six civil engineering companies operating at a staggering rate of £26million turnover for the last financial year.

The group, which worked across utilities, rail and buildings, went into administration just this August after it had compiled debts at a sum of £6.4million to its various clients, including £1.5million to the Greater Manchester Combined Authority.

FRP administrators confirmed that the administration was owed to a dispute with a major client on an important contract, saying that despite GPL’s earlier success, cashflow pressures ultimately became too much and resulted in its unfortunate demise. This news came in spite of the group’s traditional profitability and indeed an internal refinancing just this spring.

In addition, FRP reported that not only are unsecured creditors unlikely to receive the money owed to them by the felled subbie, but some secured creditors are also likely to make losses.

Such stories are far from uncommon though. This news comes alongside reports that collapsed Bristol subbie Dancourt’s creditors are just as likely to get any of their money back from the firm, which went under this July after amounting debts of £5.3million.

Evidently, subbies are no longer safe. At the root of both cases, the same core problem; cash flow issues. In an industry such as construction, cash flow can become a precarious game even if total annual profits are, on the surface, extremely high.

So what is the lesson to be learnt for construction firms wishing to avoid the same path? Clearly, don’t become complacent. Cash flow issues stemming from client disputes can come out of nowhere and have major repercussions for the livelihood of your business.

At the same time though, all is not without hope. Intervention by CRS's highly qualified and endorsed team of credit control experts can alleviate the worst of your cash flow concerns, whilst our dispute resolution experts cam ensure unforeseen disputes can be quickly resolved and our team of business professionals can guide you through the worst of it to ensure the same fate does not befall your business.

Early action is essential, as anyone who has been following UK construction news and updates knows, so don’t waste any more time.

Get in touch with CRS today on 0114 236 1884 to find out more about how you can protect your cashflow from crisis.